The Key Sections of an Effective Master Services Agreement

In our previous discussion, we looked at the major benefits of master services agreements (MSAs), particularly how they can streamline future business opportunities for your organization. As a quick review: A MSA serves as a general blueprint for how mutual business interests will be addressed and conducted on one project or on multiple or ensuing contracts.

Although a MSA can be a less formal contractual approach for project work, its development still requires careful thought and attention to detail in crafting an effective document. The initial step begins with the scope of work — a statement explaining what the parties are seeking in the agreement and a description of the services to be performed. The scope spells out the “bigger picture” of the business relationship, noting that future scopes of work will be issued pursuant to the master agreement.

A key element of a MSA is the provision for timely payment of services, with a 30-day time frame considered the general standard for most industries. Payment should also be conditional upon approval of the work performed satisfactorily. However, be cautious. Prevent line-item invoicing disputes from placing your entire payment at risk, or at the very least, from delaying payment beyond 30 days. I always include language noting that if any part of the invoice is disputed, the undisputed costs shall still be paid according to the agreement terms as a show of good faith among the parties in resolving their dispute.

A termination clause is another necessary provision of a MSA. I generally advise setting contract terms for specific time frames, say for one year, which automatically renew unless officially terminated. As accepted practice, either party should be able to terminate with reasonable notice at any time. Although such notice usually depends on the nature of the business itself, 60 days is considered preferable, especially if you have numerous subcontractors involved with a project. However, some organizations do lean toward shorter notification periods.

Confidentiality is an important part of any contractual relationship or when following a termination, unexpected or planned. A provision regarding confidentiality and nondisclosure of proprietary information should always be standard. The language should be explicit — and mutual, not unilateral confidentiality — whenever possible. It is preferable that both parties, not one, should agree not to disclose any valued information to third parties.

If the creation of intellectual property is part of the MSA scope of work, the rights to that creation must be defined among the parties. In Washington, the inventor of any property as a service provider automatically retains all intellectual property rights, if not stated otherwise in the agreement. However, most contracting parties prefer the insertion of a “work-for-hire” provision in the MSA, which states that any inventions, patents, copyrights, or trademarks created during the course of the contract are considered intellectual property, whose rights will be retained by the contracting party, not the service provider.

Indemnification provisions are another standard feature of MSAs. The indemnification process basically means that one party will step in and defend the other if a mistake, error or omission occurs. Like confidentiality agreements, indemnification provisions can be mutual or unilateral, although usually they are unilateral because one party — often the contracting party — will have greater bargaining power to position unilateral indemnification in its favor. Regardless, should you find yourself in the situation where contractually you have a unilateral indemnification provision that’s not in your favor, make sure that you have proper liability and risk insurance as a safeguard.

It is also typical for a MSA to have a non-assignment provision, meaning that the scope of work contractually tendered cannot be assigned to someone else without the approval of the other party. Obviously, you don’t want to enter into an agreement only to find that your contractual interest is later assigned to another party with whom you’ve not encountered or dealt with before.

Other sections common to MSAs include no waiver, notification, entire agreement, and severability provisions. A no-waiver clause basically points out that just because one or more aspects of the contract have been ignored, intentionally or otherwise, the entire agreement cannot be invalidated. A notification provision simply identifies the communication format for notifying contractual parties.

An entire agreement provision, also known as an “integration clause,” prevents later oral contradictions from either party to the basic terms of the entire contract, usually aimed at altering or adding language that was not in the original MSA. Severability, which is similar to the no-waiver clause, states that if any provision is found to be contrary to law or unenforceable, it doesn’t invalidate the entire contract.

Finally, I’m an advocate for spirit of cooperation provisions. Although a contract is a formal agreement, it shouldn’t be viewed as adversarial or negative in a litigious sense. It should relate how the parties are going to move forward in a partnering effort to develop a positive business relationship. To that end, I always build in mediation and arbitration clauses as vehicles for negotiating resolutions in good faith when problems arise.

Master Services Agreements Can Help Cultivate Long-Term Business Interests

If your organization is seeking to expand business opportunities and foster long-term relationships, one of the most beneficial tools to use is a master services agreement (MSA). This document not only serves as a blueprint for how mutual business interests or projects between two parties are to be addressed and conducted, but it also helps organize business relationships in a contractual but not burdensome manner, making it a very user friendly tool.

MSAs are popular for establishing relationships among a wide array of businesses, including information technology, communications, and life sciences. Traditionally, they have been used frequently for union negotiations, government contracts, and supply chains aimed at long-term relationships.

One of the primary benefits of crafting a MSA at the beginning of any business relationship is for expediting future opportunities. There is a true advantage to this approach, especially if the signing parties to the agreement are working together on more than one project at a time or plan to engage in multiple projects in the future. In many instances, the original MSA requires little or no revision of its basic contract provisions — saving time and overhead dollars. Subsequent agreements generally only call for a new scope of work, perhaps a revised purchase order, or some other change order that complements the original MSA.   

This happened to be the recent case with one of my life sciences clients, a Clinical Research Organization providing support for drug trial testing for the Food and Drug Administration. My client was hired to monitor the drug administering protocol and patient results for one particular drug at various health clinics. The MSA spelled out the business relationship for that particular project. When another drug is to be tested through clinical trials — next week, next month, or next year — a new scope of work will be issued for this second project, which will just basically outline what the new drug is and its planned use or purpose. However, the terms of the original MSA will still apply to this new project.

I’ve also observed long-term applications of MSAs in installation contracting: cell phone towers, cable systems, and communications infrastructure. Some of these agreements have been in effect for more than 10 years, and the process is simple. The parent company just forwards a revised purchase order or directive to the contracting interest, stating, “Pursuant to our master services agreement, please install . . . .” Revisions to the location, cost, and completion time are specified on the MSA as usual, but the minor terms of the contract remain intact from earlier versions.

As you can see, building a foundation for business longevity is a key benefit of MSAs. If you let your client know going forward that you can add to the MSA by tacking on an addendum or a scope of work change order, then you won’t have to negotiate the basic terms all over again.

In our next discussion, I’ll address some of the key sections of a MSA and where to begin in developing a document that has flexibility for long-term use.

A Solo Legal Practice May Afford More Flexibility, Balance of Work and Lifestyle

If you’re an avid fan of the television drama “The Good Wife,” you may sometimes wonder what it’s like to work for a large legal firm. Yes, the hours do seem long and grueling, yet there’s that attraction of a high salary plus the glamor of high-profile litigation and courtroom challenges. I will admit that television does a fair job of portraying the ambiance of large legal practices, but as they say, the devil is in the details.

Here in Seattle, a partner in a larger firm must generate about $200,000 of billable hours just to cover overhead costs — associates, paralegals, secretaries and office leasing — before he or she starts yielding any individual profit. That’s a lot of financial posturing for the luxury of serving a larger practice with staff and office overhead. Still, bigger firms do provide valuable training for attorneys just beginning their careers. They learn the practice of law in their chosen niche or specialization, and they gain valuable experience in developing a clientele base.

My legal career, too, essentially began in a large firm, but I felt somewhat trapped in a field of practice that was heavily litigious and full of conflict. I didn’t like the combative nature of the litigation process, and I really felt I would be happier if I were working with people to avoidproblems in the first place, rather than solving them later down the road. So I approached my litigation clients, informing them of my decision to leave the firm and go “solo.” Basically, I said, “I want to help you grow as a business and be successful in business. You’ve hired me before to defend you in litigation. Why not consider me as your business attorney?” With this convincing premise, I hit the ground running with no interruption in business activities or income and have never looked back!

Having the freedom and independence as a solo practicing attorney is truly incredible. In one sense, you are tied to your practice because you must be available 24/7 for clients, but your workday is your own. You can create the hours that you work and the hours that you don’t. Although my work day may often be interrupted with phone calls or emails from clients, I also have the flexibility to work 12 or 13 days straight and then take a week off. More importantly, I’m able to balance my personal lifestyle with the enjoyment of my practice by working from several different locations, including Seattle and Whistler, British Columbia. I have done that since the 2010 Olympics, when I served as a volunteer for the event and realized that I could practice effectively from both locales with some help of modern technology.

Over the last five years of operating my solo practice, I’ve encountered other attorneys, too, that have successfully established their own practices with better incomes, leaving behind the larger high-profile firms and their overhead pressures. Why not? A big office tower with high-figure floor rents and maintenance costs is no longer necessary to practice law. Technology has revolutionized the legal marketplace. All you need is a desktop or laptop computer, a printer, a scanner and some mobile communication equipment, and your office can be any size anywhere, even at home. And when scheduling clients, you now have the flexibility of visiting their offices. In fact, I actually think clients are more appreciative of the fact that an attorney is willing to come to them on their turf. Instead of being preoccupied with billable hours at high rates, clients can now develop more cost-effective business relationships withtheir attorneys, where they feel more like partners rather than line items on a profit statement.

Even today I’m still surprised when new clients tell me of their disappointment with previous attorneys who were not responsive in returning phone calls or emails, or who scheduled meetings and then failed to show. I don’t understand it, especially with all the modes of communication technology available. Moreover, this behavior delivers a poor impression of the legal profession to the public. What are these attorneys thinking? Success only prevails when clients are serviced in a respectful manner. If we can provide this service to our clients from our home offices, so much the better.

                                                          

Reflections of “Man’s Best Friend” in Protecting Client Interests

Most avid dog owners will admit their canine companions are creatures of habit, comfortable in their routines, yet still guided by instincts of which we as humans are basically clueless. The moment you “think” you have figured out all this instinctive behavior can often have surprising consequences. Fortunately for me and my dog Eddi, a German short-haired pointer, we haven’t become candidates quite yet for America’s Funniest Home Video, but there’s still time.

Early one morning recently, I let Eddi out in the backyard to do her normal “business,” something that generally takes about 2 or 3 minutes. When she didn’t return on time as usual, I became a little anxious. As it turns out, she was gathering an opossum — undoubtedly a valued gift for her master. I must note that I have received this same gift several times over already. Her strong instincts to hunt and track game don’t end with unsuspecting opossums, however.

This past summer, Eddi resorted to chasing small black bears. After numerous encounters with chasing these wild animals up trees and through the lowland forests, I knew I had to address her uncontrollable behavior, mostly for her own protection. So, I invested in a shock collar to help reinforce my stop commands, which she had obeyed previously, in addition to developing some new commands to help guard against her sometimes out-of control behavior.

By now, you’re probably wondering where I am headed with this personal tale. It’s simple. Out of love and fondness for our four-legged companions, we often assign them human traits, mostly the ability to think and reason, but what about man? Do we not sometimes exhibit that same lack of control of our behavior that we witness in our pets? We don’t have full reign over our lives entirely; we depend on others, much like our pets depend on us. Attorney-client relationships should be built on the premise of trust and dependence to consult with each other and openly discuss issues before chasing that proverbial bear up a tree.

My clients that have the most control over their businesses and the fewest legal conflicts are the ones that come to me early on to discuss potential problems before they escalate into legal dilemmas. In promulgating contractual relationships, we can modify documentation where necessary to protect clients’ interests, making sure they fully understand all pertinent issues beforehand. Those who instinctively feel they can handle their own legal matters or sign contracts without first consulting an attorney are the ones who usually end up in litigious situations because they don’t understand the ramifications of their decision.

Of course, I must confess that perhaps some of my clients occasionally gaze upon me unknowingly like my dog Eddi, asking herself, “What is he doing?” After the recent encounters with bears, she took on a new challenge a couple of times — herding elk. She gets behind the herd and chases them towards me, which is probably instinctual, encircling game and bringing it back to the hunter, waiting for the hunter to kill it. Well, I am no hunter, so she probably thinks I am the most inept owner in the world because she’s doing all the work and I’m not finishing the task. As Eddi’s master, though, it is my responsibility to protect her and safeguard her behavior as much as possible, particularly with new experiences, such as chasing elk. I have that same obligation to my clients.

Just as I have to constantly retrain Eddi to keep her clear of harmful encounters with other animals, I try to continually steer my clients in the right direction. In fact, it is often my role to discuss clients’ new business proposals. We review contract language; we talk about potential risks and rewards; we examine ways to avoid risk; and we look at how to increase the opportunities for more business and further benefits. I believe that all successful businesses, like pets and our selves, should require the same consideration of their well-being.

An Ideal Client Brings New Challenges, Cooperation . . . and Excitement!

You know the old saying: “You can choose your friends but not your family”? Well, what about clients? Someone asked me the other day, what is my ideal client? That’s an easy one. They are a client I recently picked up from a referral, which is how I develop a majority of my business.

My new client is an asbestos abatement company located in south King County here in Washington. They were contracted by a very large company in China, to train and certify their workers to become licensed asbestos handlers. The Chinese operation must put together a team of workers to abate asbestos on worldwide ocean-going vessels. As you might expect, China can perform the abatement tasks at about two-thirds the cost of doing the work in Seattle.

This is exciting territory for me! Thanks to this American enterprise, it’s a great opportunity for the Chinese company, and I’m right in the center of the action, serving as a legal liaison. I just love it! Initially, I drafted the letter of intent outlining basic parameters and the provisions for a confidential non-disclosure agreement regarding the business venture. I just finished the third phase, which is the training service agreement. My client will be dispatching four or five instructors to China to reside there full-time and train workers.

I also drafted the licensing agreement for the use of the manuals and training materials by the Chinese, assuring that the American company will keep full ownership of its intellectual property. There is going to be a host of other contracts to develop, too, as we move forward with this business arrangement.

So far, my observations are quite optimistic. I am seeing firsthand how this business is going to evolve. I have a very good relationship with my client and an equally good relationship with the party in China. Fortunately, this is not a case where you are battling with the terms of agreement. This is the ideal situation in which you’re discussing matters of importance with both sides — what they each want to accomplish with the agreement. And I get to memorialize it in simple, easy-to-understand language that is going to help everyone move forward and understand their working relationship

In terms of the business contract, all legal provisions are based on American law via a choice-of-law provision, which is why it was very wise of my client to take the initiative in developing the first round of draft agreements. This entire process will be governed by Washington state law, and we’ve placed a choice-of-law provision in the contract, to guarantee this. Not only is this good business sense, it is a sound practical move. Licensing for asbestos abatement falls under the strict guidelines of the U.S. Environmental Protection Agency, and the Chinese company is seeking accreditation under an American licensing system. This, of course, will give the Chinese more credibility when they’re marketing their services to international shipping companies.

As part of my oversight responsibilities, trust is a vital issue. We have incorporated provisions into the contract regarding payment and have clearly set forth an agreement that payment is due within 15 days upon invoicing. I consider this matter to be the most contentious, potentially speaking. If there’s a dispute along the way, it will probably be over payment issues.

The larger concern focuses on the intellectual property rights to the manuals and training materials that are being licensed. You quite often hear about the Chinese knocking off other companies’ research, patents and property rights. Again, there’s the matter of trust; we are hoping that this Chinese company is not going to mass-produce these manuals and materials, thereby undercutting my client’s ability to do business in China.

To contractually safeguard against this violation, we have assigned this business arrangement a finite two-year term, with the ability to renew or not renew after that period of time. Within two years, we’ll certainly know whether any piracy issues have surfaced. If any do, we’ll just pull the plug on the contract. However, I believe it is beneficial for the Chinese to work with my client and abide by the rules, so I’m going to keep an optimistic outlook.

Reviewing Compliancy with Employment Laws Can Help Mitigate Your Legal Risk

As a responsible member of the legal profession, I sometimes have to remind clients of the value in preventing disputes before they escalate into something more serious. And one of the most effective ways for businesses to be proactive in avoiding unnecessary legal risk is to periodically self-examine their organizational structure and operations, to safeguard their compliance with state and federal employment laws.

An area of compliance often vulnerable to legal repercussions is the typical employee file. What information are you or your human resources department storing in these files, and how is this information organized? Although common practices may suggest that one umbrella file for each employee containing all data is the most centralized solution, that approach may not legally satisfy some compliance standards. For instance, did you know that the Health Insurance Portability and Accountability Act of 1996 requires companies to maintain separate files for employees regarding their health insurance benefits package and medical history? Unfortunately, some businesses could inadvertently be sharing this data in the same file with general information relating to hiring agreements, performance evaluations and disciplinary actions. As a side note, it’s also a good idea to know the time expiration statutes for retaining employee documents within your state.

Another compliance pitfall is Form I-9: Employment Eligibility Verification, which is issued by the U.S. Department of Homeland Security, containing citizenship and immigration information. Aside from errors in completing these forms, I have sometimes observed vulnerabilities in the security and storage of these documents. As with maintaining separate health insurance and medical history files for each employee, I suggest that I-9 forms be placed in secure binders and locked in storage. I also recommend that these documents be electronically scanned for backup purposes and stored in separate, secure locations. I might note, too, that there are paperless methods for completing I-9s and safely storing them off-site.

Company pension and retirement investment reforms over the last decade have also introduced new areas for compliance. Today, you must assure your employees they are receiving updated, clear reporting of their vested financial benefits. This not only requires proper documentation, but it also calls for opening lines of communication that are easy for employees to comprehend. They should always have access to business financial advisers to explain any concerns and answer questions regarding their benefits.

Businesses also occasionally overlook another compliance detail: the displaying of posters pertaining to U.S. labor laws. Although it’s easy to forget this small task, these posters are mandatory and must be placed in conspicuous workplace areas where they can be easily viewed by employees. Similar posters issued to certain organizations by the Occupational Safety and Health Administration and other state and federal agencies also usually fall under the same mandatory rules for compliance.

Finally, have you reviewed or updated your employee handbook lately? I can’t stress enough the importance of maintaining and disseminating this informational guide to everyone in your organization, including high-level management. If you represent a smaller organization, one that doesn’t have a formally published handbook, your employees or co-workers should have an alternative access to pertinent information, such as your organizational mission and values, performance goals and objectives, use of company resources for personal use, standards of conduct and behavior, and disciplinary and termination policies. A well-designed handbook that is regularly updated for employee orientation, retention, and development and training serves as a valuable tool in lowering the risk of company liability in the event of an employee lawsuit.

Mediation: A Simple, Effective Approach for Resolving Complex Issues

No doubt, many of you have watched a few evening television dramas depicting the mediation process. Scurrying from one conference room to another numerous times, sometimes carrying sandwiches and beverages, the mediator attempts to settle the differences between disputing parties to stave off an impending courtroom battle.

Believe it or not, except for a few embellishments, the television portrayals of mediation are fairly accurate — or at least more believable than the courtroom antics often aired. There is, of course, more detail to the mediation process than what I just described, but the salient point is that mediation can be a valuable tool in settling legal claims before they escalate to the trial level. In fact, in states where mediation is regularly deployed, there has been a 95 percent success rate of resolving conflicts prior to litigation, making it one of the more popular forms of alternate dispute resolution.

Aside from being a positive, upbeat approach for settling legal claims through discussion, negotiation and compromise, the mediation process is quite expedient and cost-effective as compared to lengthy and expensive courtroom litigation. Consequently, to help streamline the legal process, many jurisdictions across the United States are requiring that all disputed claims defer to mediation first before considering any litigious action in a courtroom. In all of the contracts I draft for business or transactional clients, I build in a provision requiring neutral third-party mediation as a preventative measure to avoid litigation.

Neutral mediators can be retained from several sources. For instance, local attorneys who have quality reputations as problem solvers are always a good choice. I often use the mediation services of Christopher Soelling, a well-respected Seattle lawyer. Retired judges, local or statewide, that are trained and experienced in dispute resolution are other prime sources for neutral mediators. There are also professional mediation services available statewide or regionally, or you can contact the American Arbitration Association regarding their professional mediators who serve nationwide.

In all mediations, preliminary documentation is required of all parties to a dispute, including an exchange of position papers or mediation briefs. Generally, two separate sets of mediation briefs are distributed, one for the parties undergoing mediation and the other specially earmarked for the mediator. And as you would expect, there are basic ground rules for conducting mediation.

Ethicsl rules prevent the sharing of confidential information between disputing parties by the mediator. However, with permission, a mediator may share information to encourage settlement. Also, joint sessions of the disputing parties are permitted, but most attorneys involved in mediation waive that right, preferring the process to be conducted in separate rooms with the mediator acting as the “go-between” in negotiations. It is important to note, too, that a mediator does not decide the outcome of any mediation, but acts more like a facilitator working toward solving problems.

Sometimes, mediation is not successful initially, and there can be occasional roadblocks. When dealing with construction claims cases, for example, you need to have an insurance adjustor available on site to make decisions. The same goes for large corporations or multi-claim disputes. You must have someone with authority present during a mediation to sign off on any conditions for settlement.

Eventually, though, perhaps after several attempts, mediation will usually result in a successful compromise between disputing parties. And in some states, like Washington, once a settlement is reached and general terms are accepted, the provisions of a mediation agreement can be legally binding and enforceable when a prepared document is signed jointly by all parties of the mediation.